Edgar Filing: KIWA BIO-TECH PRODUCTS GROUP CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Quarterly Period Ended September 30, 2004

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 000-33167

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

(Exact name of small business issuer as specified in its charter)

Delaware 84-0448400
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

17700 Castleton Street, Suite 589, City of Industry, California 91748
---------------------------------------------------------------------
(Address of principal executive offices)

Issuer's telephone number: (626) 964-3232

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

As of November 12, 2004, the Company had 40,918,710, shares of common stock
issued and outstanding.

Transitional Small Business Disclosure Format: Yes [ ] No [X]

KIWA BIO-TECH PRODUCTS GROUP CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

INDEX

PART I. FINANCIAL INFORMATION.................................................3

Item 1. Financial Statements..................................................3

Condensed Consolidated Balance Sheets - September 30, 2004
(Unaudited) and December 31, 2003.....................................3

Condensed Consolidated Statements of Operations (Unaudited) -
Three Months and Nine Months Ended September 30, 2004 and 2003,
and June 5, 2002 (Inception) to September 30, 2004 (Cumulative).......5

Condensed Consolidated Statement of Stockholders' Equity
(Deficiency) (Unaudited) - June 5, 2002 (Inception) to September
30, 2004 Cumulative)..................................................6

Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2004 and 2003, and June 5, 2002
(Inception) to September 30, 2004 (Cumulative)........................9

Notes to Condensed Consolidated Financial Statements
(Unaudited)- Three Months and nine Months Ended September 30, 2004
and 2003, and June 5, 2002 (Inception) to September 30, 2004
(Cumulative).........................................................11

Item 2. Management's Discussion and Analysis or Plan of Operation............20

Item 3. Controls and Procedures............................................ 35

PART II. OTHER INFORMATION....................................................36

Item 2. Changes in Securities, Use of Proceeds and Small Business
Issuer Purchases of Equity Securities................................36

Item 6. Exhibits.............................................................36

SIGNATURES....................................................................37

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Kiwa Bio-Tech Products Group Corporation and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Balance Sheets

September 30, December 31,
2004 2003
----------- -----------
(Unaudited)

ASSETS

Current assets:
Cash ................................... $ 342,133 $ 48,730
Restricted cash ........................ -- 300,000
Accounts receivable .................... 534,055 45,235
Inventories ............................ 255,254 135,201
Due from related party ................. -- 30,574
Prepaid expense ........................ 111,586 36,683
Other current assets .................. 177,235 73,128
----------- -----------
Total current assets ..................... 1,420,263 669,551
----------- -----------

Property and equipment:
Buildings .............................. 1,045,599 1,045,599
Machinery and equipment ................ 290,139 312,784
Automobiles ............................ 101,321 97,485
Construction in process ................ 44,535 45,108
Office equipment ....................... 49,688 11,640
Computer software ...................... 8,718 --
----------- -----------
1,540,000 1,512,616
Less: accumulated depreciation ......... (94,879) (35,468)
----------- -----------
1,445,121 1,477,148
----------- -----------
Intangible asset, net ................. 473,739 --
----------- -----------
Total assets ............................ $ 3,339,123 $ 2,146,699
=========== ===========

(continued)

Kiwa Bio-Tech Products Group Corporation and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Balance Sheets (continued)

September 30, December 31,
2004 2003
----------- -----------
(Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)

Current liabilities:
Accounts payable and accrued
expenses ................................. $ 1,051,227 $ 737,636
Short-term loans ........................... -- 283,930
Due to related party ....................... 122,933 --
Convertible notes payable -
Related party ............................ -- 100,000
Unrelated party .......................... 267,969 --
Current portion of long-term
liabilities .............................. 72,790 133,298
----------- -----------
Total current liabilities .................... 1,514,919 1,254,864
----------- -----------

Long-term liabilities, less current portion:
Unsecured notes payable .................. 1,389,443 1,063,226
Bank notes payable ....................... 30,509 39,732
----------- -----------
1,419,952 1,102,958
----------- -----------

Commitments and contingencies

Stockholders' equity (deficiency):
Common stock, $0.001 par value -
Authorized - 50,000,000 shares
Issued and outstanding - 40,428,711
shares and 30,891,676 shares at
September 30, 2004 and December 31,
2003, respectively ....................... 40,429 30,892
Additional paid-in capital ................... 4,350,260 1,184,108
Deficit accumulated during the
development stage .......................... (3,986,437) (1,426,123)
----------- -----------
Total stockholders' equity (deficiency)....... 404,252 (211,123)
----------- -----------
Total liabilities and
stockholders' equity (deficiency)........... $ 3,339,123 $ 2,146,699
=========== ===========

See accompanying notes to condensed consolidated financial statements.

Kiwa Bio-Tech Products Group Corporation and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statements of Operations (Unaudited)

June 5, 2002
Three Months Ended September 30, Nine Months Ended September 30, (Inception) to
------------------------------ ---------------------------- September 30,
2004
2004 2003 2004 2003 (Cumulative)
------------ ------------ ------------ ------------ ------------

Net sales ...................... $ 407,884 $ -- $ 701,101 $ -- $ 741,132
Cost of sales .................. 170,387 -- 277,688 -- 307,982
------------ ------------ ------------ ------------ ------------
Gross profit ................... 237,497 -- 423,413 -- 433,150
------------ ------------ ------------ ------------ ------------

Operating expenses:
Consulting and professional
fees ....................... 186,075 -- 285,535 -- 853,138
Directors' compensation ...... 2,175 2,175 22,473 19,730 370,489
General and administrative ... 160,245 168,415 436,234 254,837 805,169
Research and development ..... 14,195 17,147 40,946 44,051 110,545
Depreciation and amortization. 17,725 3,451 35,260 7,112 54,150
Reverse merger costs ......... -- -- 1,417,434 -- 1,467,770
------------ ------------ ------------ ------------ ------------
Total costs and expenses ..... 380,415 191,188 2,237,882 325,730 3,661,261
------------ ------------ ------------ ------------ ------------
(142,918) (191,188) (1,814,469) (325,730) (3,228,111)
------------ ------------ ------------ ------------ ------------

Interest income (expense), net.. (10,194) (4,486) (745,845) (3,877) (758,326)
------------ ------------ ------------ ------------ ------------

Net loss ....................... $ (153,112) $ (195,674) $ (2,560,314) $ (329,607) $ (3,986,437)
============ ============ ============ ============ ============

Net loss per common share -
basic and diluted ............ $ (0.004) $ (0.016) $ (0.072) $ (0.027)
============ ============ ============ ============

Weighted average number
of common shares
outstanding -
basic and diluted ............ 39,166,806 12,356,670 35,772,751 12,356,670
============ ============ ============ ============

See accompanying notes to condensed consolidated financial statements.

Kiwa Bio-Tech Products Group and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity
(Deficiency) (Unaudited)
June 5, 2002 (Inception) to September 30, 2004 (Cumulative)

Deficit
Accumulated Total
Common Stock Additional During the Stockholders'
------------------------- Paid-in Development Equity
Shares Amount Capital Stage (Deficiency)
---------- --------- --------- ----------- ------------

Issuance of
common stock 12,356,670 $ 12,357 $ 452,643 $ -- $ 465,000

Net loss for the
period from
June 5, 2002
(Inception) to
December 31,
2002 -- -- -- (70,884) (70,884)
---------- -------- ---------- ----------- -----------
Balance,
December 31,
2002 12,356,670 12,357 452,643 (70,884) 394,116

Shares issued
to consultants
for services 10,503,170 10,503 414,497 -- 425,000

Shares issued to
directors as
directors'
compensation 8,031,836 8,032 316,968 -- 325,000

Net loss for the
year ended
December 31,
2003 -- -- -- (1,355,239) (1,355,239)
---------- -------- ---------- ----------- -----------
Balance,
December 31,
2003 30,891,676 30,892 1,184,108 (1,426,123) (211,123)

(continued)

Kiwa Bio-Tech Products Group and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity
(Deficiency) (Unaudited) (continued)
June 5, 2002 (Inception) to September 30, 2004 (Cumulative)

Shares retained
by public
shareholders
in March 2004
reverse merger
transaction 4,038,572 4,038 (4,038) -- --

Issuance of
warrants in
conjunction
with March
2004 reverse
merger
transaction -- -- 943,380 -- 943,380

Issuance of
stock options
to consultant
in conjunction
with March 2004
reverse merger
transaction -- -- 171,000 -- 171,000

Beneficial
conversion
feature of
convertible
note payable
funded on
January 25, 2004 -- -- 500,000 -- 500,000

(continued)

Beneficial
conversion
feature of
convertible
note payable
funded on
April 7, 2004 -- -- 200,000 -- 200,000

Shares issued
upon conversion
of convertible
notes payable 2,800,000 2,800 697,200 -- 700,000

Shares issued
to a consultant
for services 75,000 75 33,675 -- 33,750

Shares issued to
China Agricultural
University in
conjunction with
April 2004 Patent
Transfer Agreement 1,000,000 1,000 419,000 -- 420,000

Shares issued
to consultant in
conjunction with
July 2004 Standby
Equity Distribution
Transaction 26,567 27 (27) -- --

Shares issued to
investors in
conjunction with July
2004 Standby Equity
Distribution
Transaction 704,039 704 (704) -- --

Shares issued to
attorneys for
professional services 892,857 893 124,107 -- 125,000

Issuance of warrants
in conjunction with
September 2004
convertible
notes payable -- -- 82,559 -- 82,559

Net loss for the
nine months ended
September 30, 2004 -- -- -- (2,560,314) (2,560,314)

---------- -------- --------- ----------- ----------
Balance,
September 30,
2004 40,428,711 $ 40,429 $4,350,260 $(3,986,437) $ 404,252
========== ======== ========== =========== ==========

See accompanying notes to condensed consolidated financial statements.

Kiwa Bio-Tech Products Group and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended June 5, 2002
September 30, (Inception) to
-------------------------- September 30,
2004
2004 2003 (Cumulative)
----------- ----------- -----------

Cash flows from operating activities:
Net loss .......................... $(2,560,314) $ (329,607) $(3,986,437)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Issuance of common stock
for services .................. 158,749 -- 546,588
Issuance of common stock for
directors' compensation ....... -- -- 325,000
Issuance of securities for
reverse merger costs .......... 1,114,380 -- 1,114,380
Depreciation and amortization ... 66,611 9,653 102,079
Amortization of prepaid
consulting fee ................ 3,538 -- 3,538
Amortization of beneficial
conversion feature of
convertible notes payable ... 700,000 -- 700,000
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable ......... (488,820) -- (534,055)
Inventories ................. (120,053) (92,229) (255,254)
Prepaid expenses ............ (78,440) (22,410) (151,090)
Other current assets ..... (104,107) (241,556) (104,107)
Deposits .................... -- 25,794 --
Increase (decrease) in:
Accounts payable and
accrued expenses .......... 280,202 134,955 1,017,838
Due to related party ........ 53,507 (26,902) 22,933
----------- ----------- -----------
Net cash used in operating
activities ...................... (974,747) (542,302) (1,198,587)
----------- ----------- -----------

Cash flows from investing
activities:
Purchases of property and
equipment ..................... (24,201) (884,745) (1,536,817)
Acquisition of intangible asset . (30,205) -- (30,205)
----------- ----------- -----------
Net cash used in investing
activities ...................... (54,406) (884,745) (1,567,022)
----------- ----------- -----------

(continued)

Kiwa Bio-Tech Products Group Corporation and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)

Nine Months Ended June 5, 2002
September 30, (Inception) to
-------------------------- September 30,
2004
2004 2003 (Cumulative)
----------- ----------- -----------

Cash flows from financing activities:
Decrease in restricted cash ........ 300,000 -- --
Proceeds from sale of common stock . -- -- 465,000
Proceeds from short-term loans ..... -- 187,274 283,930
Repayment of short-term loans ...... (283,930) -- (283,930)
Proceeds from convertible
notes payable ..................... 1,050,000 -- 1,150,000
Proceeds from long-term
borrowings ....................... 326,217 1,044,445 1,566,299
Repayment of long-term
borrowings ....................... (69,731) (108,458) (73,557)
----------- ----------- -----------
Net cash provided by
financing activities ............... 1,322,556 1,123,261 3,107,742
----------- ----------- -----------
Cash:
Net increase (decrease) ............ 293,403 (303,786) 342,133
Balance at beginning of period ..... 48,730 522,057 --
----------- ----------- -----------
Balance at end of period ........... $ 342,133 $ 218,271 $ 342,133
=========== =========== ===========

Supplemental Disclosures of
Cash Flow Information:

Cash paid for interest ............... $ 7,675 $ 2,717 $ 17,213
=========== =========== ===========
Cash paid for taxes .................. $ -- $ -- $ --
=========== =========== ===========
Non-cash investing and financing
activities:

Issuance of common stock for
convertible notes payable .......... $ 700,000 $ -- $ 700,000
=========== =========== ===========
Beneficial conversion feature of
convertible notes payable .......... $ 700,000 $ -- $ 700,000
=========== =========== ===========
Transfer from convertible notes
payable to due to related
party ............................. $ 100,000 $ -- $ 100,000
=========== =========== ===========
Issuance of common stock in
exchange for patent ................ $ 420,000 $ -- $ 420,000
=========== =========== ===========
Issuance of detachable warrants
in conjunction with issuance of
convertible notes payable .......... $ 82,559 $ -- $ 82,559
=========== =========== ===========

See accompanying notes to condensed consolidated financial statements.

KIWA BIO-TECH PRODUCTS GROUP CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months and Nine Months Ended September 30, 2004 and 2003, and June 5, 2002
(Inception) to September 30, 2004 (Cumulative)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization - On March 12, 2004, pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") dated as of March 11, 2004, by and among Tintic Gold
Mining Company, a Utah corporation ("Tintic" or "Kiwa"), TTGM Acquisition
Corporation, a Utah corporation and wholly-owned subsidiary of Tintic ("Merger
Sub"), and Kiwa Bio-Tech Products Group Ltd., a privately-held corporation
organized in the British Virgin Islands ("Kiwa Bio-Tech"), Merger Sub merged
with and into Kiwa Bio-Tech with Kiwa Bio-Tech surviving as a wholly-owned
subsidiary of Tintic (the "Merger"). In exchange for 100% of the issued and
outstanding shares of Kiwa Bio-Tech, the Kiwa Bio-Tech stockholders were issued
30,891,676 shares of Tintic's common stock (after giving effect to a 4-to-1
stock split effective as of March 29, 2004). The stockholders of Tintic retained
their 4,038,572 shares of common stock which were issued and outstanding prior
to the consummation of the Merger Agreement. Tintic also assumed 1,852,501 stock
options issuable by Kiwa Bio-Tech at March 12, 2004. On March 17, 2004, Tintic
changed its name to Kiwa Bio-Tech Products Group Corporation.

At the closing of the Merger Agreement, Tintic transferred all of its pre-merger
assets, consisting primarily of its interest in certain mining claims situated
in the State of Utah, subject to all of its pre-merger liabilities, to a
newly-formed, wholly-owned subsidiary, Tintic Gold Mining Company, a Nevada
corporation ("Tintic Nevada"). The shares of Tintic Nevada were transferred to
an escrow agent to be held in escrow for the benefit of the pre-merger
stockholders of Tintic until such time as the distribution of such shares has
been registered under the Securities Act of 1934 and any applicable state
securities laws.

The Merger resulted in a change of control of Tintic, with the former
stockholders of Kiwa Bio-Tech acquiring approximately 88.4% of Tintic's common
stock immediately following the closing of the Merger. Accordingly, this
transaction was accounted for as a recapitalization of Kiwa Bio-Tech, pursuant
to which the accounting basis of Kiwa Bio-Tech continued unchanged subsequent to
the transaction date. Accordingly, the pre-transaction financial statements of
Kiwa Bio-Tech are now the historical financial statements of the Company. The
stockholders' equity (deficiency) section of the balance sheet has been
retroactively restated for all periods presented to reflect the post-transaction
equity received by the Kiwa Bio-Tech stockholders as a result of the
recapitalization.

Kiwa Bio-Tech was incorporated on June 5, 2002 in the British Virgin Islands as
a holding company. On October 11, 2002, Kiwa Bio-Tech established a wholly-owned
subsidiary, Kiwa Bio-Tech Products (Shandong) Co., Ltd. ("Kiwa-SD") in Zoucheng
City, Shandong Province, People's Republic of China (the "PRC").

On June 3, 2004, the Company's stockholders approved by written consent the
Company's reincorporation from Utah to Delaware. The reincorporation became
effective on July 22, 2004.

Unless the context indicates otherwise, Kiwa and its wholly-owned subsidiaries,
Kiwa Bio-Tech and Kiwa SD, are referred to herein collectively as the "Company".

Business - The Company intends to develop, manufacture, distribute and market
innovative, cost-effective and environmentally safe bio-technological products
for the agricultural, natural resources and environmental protection markets,
primarily in the PRC. The Company intends to improve existing products and to
develop new products. Activities to date have included conducting research and
development, acquiring and developing intellectual property, raising capital,
development of a manufacturing facility, identification of strategic
acquisitions and execution of sales in selected major agricultural markets in
the PRC. The Company's first product, a photosynthesis biological catalyst, was
introduced in the PRC agricultural market in November 2003. The Company is still
a development stage entity.

As the Company's principal operations are conducted in the PRC, the Company is
subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These risks include, among
others, risks associated with the political, economic and legal environments and
foreign currency exchange limitations encountered in the PRC. The Company's
results of operations may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, among other things.

In addition, all of the Company's transactions undertaken in the PRC are
denominated in Renminbi ("RMB"), which must be converted into other currencies
before remittance out of the PRC may be considered. Both the conversion of RMB
into foreign currencies and the remittance of foreign currencies abroad require
the approval of the PRC government.

Basis of Presentation - The condensed consolidated financial statements include
the operations of Kiwa Bio-Tech Products Group Corporation and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.

The interim condensed consolidated financial statements are unaudited, but in
the opinion of management of the Company, contain all adjustments, which include
normal recurring adjustments, necessary to present fairly the financial position
at September 30, 2004, the results of operations for the three months and nine
months ended September 30, 2004 and 2003, and the cash flows for the nine months
ended September 30, 2004 and 2003. The consolidated balance sheet as of December
31, 2003 is derived from the Company's audited financial statements.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Certain information
and footnote disclosures normally included in financial statements that have
been presented in accordance with generally accepted accounting principles in
the United States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission with respect to
interim financial statements, although management of the Company believes that
the disclosures contained in these financial statements are adequate to make the
information presented therein not misleading. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's Current Report on Form 8-K dated March 12, 2004, as amended, as filed
with the Securities and Exchange Commission.

The results of operations for the three months and nine months ended September
30, 2004 are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending December 31, 2004.

Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Going Concern - The consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The carrying amounts of assets and liabilities presented in
the consolidated financial statements do not purport to represent the realizable
or settlement values. The Company incurred a net loss of $153,112, $2,560,314
and $1,355,239 during the three months and nine months ended September 30, 2004
and the year ended December 31, 2003, respectively, and the Company's current
liabilities exceeded its current assets by $94,656 and $585,313 at September 30,
2004 and December 31, 2003, respectively. In addition, the Company is still in
the development stage and will require additional capital to fund its business
plan, and is continuing to develop its manufacturing facility and has not
generated significant revenues from its planned principal operations. These
factors create substantial doubt about the Company's ability to continue as a
going concern.

As a result of the aforementioned conditions, the Company's registered
independent public accountants, in their independent auditors' report on the
consolidated financial statements as of and for the year ended December 31,
2003, have included an explanatory paragraph in their opinion indicating that
there is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not contain any adjustments that might
result from the outcome of this uncertainty.

As of September 30, 2004, the Company had obtained non-interest bearing loans
from the local PRC government of approximately $1,390,000 on favorable repayment
terms. These loans require the Company to begin repayment of the outstanding
balance of these loans of approximately $1,060,000 at September 30, 2004 as our
Chinese subsidiary becomes profitable and for the entire balance to be paid
within three years. For the year ending December 31, 2004, the Company intends
to raise additional capital through the issuance of debt or equity securities to
fund the development of its planned business operations, although there can be
no assurances that the Company will be successful in this regard. There can be
no assurances that the Company will be able to obtain sufficient funds to allow
it to continue its operations during the remainder of 2004.

To the extent that the Company is unable to successfully raise the capital
necessary to fund its future cash requirements on a timely basis and under
acceptable terms and conditions, the Company will not have sufficient cash
resources to maintain operations, and may have to curtail operations and
consider a formal or informal restructuring or reorganization.

Foreign Currency Translation - The functional currency of the Company is the
Renminbi ("RMB"). Transactions denominated in foreign currencies are translated
into RMB at the unified exchange rates quoted by the People's Bank of China,
prevailing at the transaction dates. Monetary assets and liabilities denominated
in foreign currencies are translated into RMB using the applicable unified
exchange rates prevailing at the balance sheet date.

Translations of amounts from RMB into United States Dollars ("US$") were at
approximately US $1.00 = RMB 8.28 for all periods presented. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
that rate or at any other rate. Due to the stability of the RMB during the
periods covered by the consolidated financial statements, no material exchange
differences exist.

Net Loss Per Common Share - Basic loss per common share is calculated by
dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted loss per common share reflects the potential dilution
that would occur if dilutive securities (stock options, warrants and convertible
debt) were exercised. These potentially dilutive securities were not included in
the calculation of loss per share for the periods presented because the Company
incurred a loss during such periods and thus their effect would have been
anti-dilutive. Accordingly, basic and diluted loss per common share is the same
for all periods presented. As of September 30, 2004, potentially dilutive
securities aggregated 4,847,000 shares of common stock. The loss per common
share calculation for the three months and nine months ended September 30, 2003
reflects the retroactive restatement of the stockholders' equity (deficiency)
section of the balance sheet to reflect the March 2004 recapitalization of Kiwa
Bio-Tech.

The Company effected a 4-for-1 forward split of its outstanding shares of common
stock effective March 29, 2004, in conjunction with the reverse merger
transaction with Kiwa Bio-Tech described above. Unless otherwise indicated, all
share and per share amounts presented herein have been adjusted to reflect the
forward stock split.

Comprehensive Income (Loss) - The Company has adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting
and display of comprehensive income, its components and accumulated balances in
a full set of general purpose financial statements. SFAS No. 130 defines
comprehensive income (loss) to include all changes in equity except those
resulting from investments by owners and distributions to owners, including
adjustments to minimum pension liabilities, accumulated foreign currency
translation, and unrealized gains or losses on marketable securities.

The Company's only component of comprehensive income (loss) is foreign currency
translation income (loss). Comprehensive income (loss) was not material for all
periods presented.

Stock-Based Compensation - The Company periodically issues shares of common
stock for services rendered or for financing costs. Such shares are valued based
on the market price on the transaction date.

The Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs.

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation", which establishes a fair value
method of accounting for stock-based compensation plans.

The provisions of SFAS No. 123 allow companies to either record an expense in
the financial statements to reflect the estimated fair value of stock options or
warrants to employees, or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", but to disclose on an annual basis the pro forma effect on
net income (loss) and net income (loss) per common share had the fair value of
the stock options and warrants been recorded in the financial statements. SFAS
No. 123 was amended by SFAS No. 148, which now requires companies to disclose in
interim financial statements the pro forma effect on net income (loss) and net
income (loss) per common share of the estimated fair market value of stock
options or warrants issued to employees. The Company has elected to continue to
account for stock-based compensation plans utilizing the intrinsic value method.
Accordingly, compensation cost for stock options and warrants is measured as the
excess, if any, of the fair market price of the Company's common stock at the
date of grant above the amount an employee must pay to acquire the common stock.

In accordance with SFAS No. 123, the cost of stock options and warrants issued
to non-employees is measured at the grant date based on the fair value of the
award. The fair value of the stock-based award is determined using the
Black-Scholes option-pricing model. The resulting amount is charged to expense
on the straight-line basis over the period in which the Company expects to
receive benefit, which is generally the vesting period.

The Company did not issue any stock options to its officers or management during
the nine months ended September 30, 2004.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments meets the
characteristics of a derivative and when a derivative contains a financing
component. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 did not have a significant
effect on the Company's financial statement presentation or disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS No. 150 is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 did not have a
significant effect on the Company's financial statement presentation or
disclosures.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair market
value of the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The initial
recognition and measurement provisions of FIN 45 apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company implemented
the disclosure provisions of FIN 45 in its December 31, 2002 consolidated
financial statements, and the measurement and recording provisions of FIN 45
effective January 1, 2003. The implementation of the provisions of FIN 45 did
not have a significant effect on the Company's consolidated financial statement
presentation or disclosures.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements",
relating to consolidation of certain entities. In December 2003, the FASB issued
a revised version of FIN 46 ("FIN 46R") that replaced the original FIN 46. FIN
46R requires identification of a company's participation in variable interest
entities ("VIEs"), which are defined as entities with a level of invested equity
that is not sufficient to fund future activities to permit it to operate on a
standalone basis. For entities identified as a VIE, FIN 46R sets forth a model
to evaluate potential consolidation based on an assessment of which party to the
VIE (if any) bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46R also sets forth certain
disclosures regarding interests in VIEs that are deemed significant, even if
consolidation is not required. The Company is not currently participating in, or
invested in any VIEs, as defined in FIN 46R. The implementation of the
provisions of FIN 46R in 2003 did not have a significant effect on the Company's
consolidated financial statement presentation or disclosures.

3. INVENTORIES

Inventories consisted of the following at September 30, 2004 and December 31,
2003:

September 30, 2004 December 31, 2003
------------- -----------------
(Unaudited)

Raw materials $ 219,040 $ 23,497
Work in progress 26,506 111,390
Finished goods 9,708 314
------- -------
$255,254 $135,201
======== ========

4. PREPAID EXPENSES

Prepaid expenses consisted of the following at September 30, 2004 and December
31, 2003:

September 30, 2004 December 31, 2003
------------- -----------------
(Unaudited)

Prepaid insurance $ 1,180 $ --
Prepaid interest expense 16,827 --
Prepaid professional fees 37,162 --
Prepaid commission 32,000 --
Prepaid other operating expenses 24,417 36,683
------- -------
$111,586 $ 36,683
======== ========

5. OTHER CURRENT ASSETS

Other current assets consisted of the following at September 30, 2004 and
December 31, 2003:

September 30, 2004 December 31, 2003
------------- -----------------
(Unaudited)

Deposits $ 12,859 $ --
Advances 5,959 66,002
Other receivable 157,495 --
Others 922 7,126
------- -------
$177,235 $ 73,128
======== ========

The other receivable consists of an advance to an unrelated entity for payment
of reverse merger costs in March 2004. The debtor has agreed to repay the
advance in accordance with the following schedule:

Payment Date Amount
----------------- ---------

December 15, 2004 $ 30,000
January 18, 2005 30,000
February 15, 2005 30,000
March 15, 2005 30,000
April 15, 2005 37,495
-------
$ 157,495
========

6. INTANGIBLE ASSET

The Company's intangible asset as of September 30, 2004 consisted of the
following:

Expected Gross
Amortization Carrying Accumulated Intangible
Period Value Amortization asset, net
------------ -------- ------------ ----------
Patent 12 years 480,411 6,672 473,739

The following table presents the expected amortization expense related to the
patent for the subsequent five years:

Amount
--------
For the year ending December 31:
2004 (Three months remaining) $ 10,008
2005 40,034
2006 40,034
2007 40,034
2008 40,034
2009 40,034
Thereafter 263,561
---------
$ 473,739
=========

7. RELATED PARTY TRANSACTIONS WITH CHINA STAR INVESTMENT GROUP

China Star Investment Group is a company which is 10% owned by a major
stockholder of the Company. The balance due to China Star at September 30, 2004
of $122,933 was primarily related to a loan from China Star and operating
expenses that China Star paid on behalf of the Company. The balance due from
China Star at December 31, 2003 of $30,574 resulted from unsecured, non-interest
bearing cash advances which are due on demand.

In October 2003, the Company obtained a $100,000 loan from China Star. The loan
was scheduled to mature on October 20, 2004, and bears interest at 12% per
annum, payable at maturity. As part of the loan terms, China Star had the right
to convert the loan into shares of the Company's common stock at $0.25 per share
at any time prior to the maturity date, subject to the Company completing a
reverse merger transaction in the United States, which was accomplished in March
2004. China Star has waived this conversion right. At September 30, 2004, there
is a balance due to China Star of $72,433.

8. EQUITY-BASED TRANSACTIONS

From June 5, 2002 (Inception) to September 30, 2004 (Cumulative), the Company
has engaged in the following equity-based transactions:

The Company was initially capitalized on June 5, 2002 through the sale of
12,356,670 shares of common stock for $465,000.

On December 31, 2003, the Company issued 18,535,006 shares of common stock in
exchange for consulting services provided by various consultants and directors
of the Company.

In conjunction with the March 2004 reverse merger transaction (see Note 1), the
Company entered into the following equity-based transactions:

a. In exchange for 100% of the issued and outstanding shares of Kiwa
Bio-Tech, the Kiwa Bio-Tech stockholders were issued 30,891,676 shares
of Tintic's common stock.

b. The stockholders of Tintic retained their 4,038,572 shares of common
stock which were issued and outstanding prior to the consummation of
the Merger Agreement.

c. Tintic assumed 1,852,501 stock options issuable by Kiwa Bio-Tech at
March 12, 2004.

d. Effective March 11, 2004, the Company issued a warrant to its financial
advisor to purchase 1,747,000 shares of common stock exercisable at
$0.20 per share six years. The fair value of this warrant was
determined to be approximately $0.54 per share pursuant to the
Black-Scholes option-pricing model. The aggregate fair value of such
warrant of $943,380 was charged to operations as reverse merger costs
during the three months ended March 31, 2004.

e. Effective March 30, 2004, the Company issued a stock option to a
consultant to purchase 300,000 shares of common stock exercisable at
$0.20 per share for ten years. The fair value of this option was
determined to be approximately $0.57 per share pursuant to the
Black-Scholes option pricing model. The aggregate fair value of such
option of $171,000 was charged to operations as reverse merger costs
during the three months ended March 31, 2004.

On January 25, 2004, the Company entered into a convertible loan agreement for
$500,000, with interest at 12%, payable at maturity. The loan was scheduled to
mature on September 25, 2004. As part of the loan terms, the lender has the
right to convert the loan into shares of the Company's common stock at $0.25 per
share at any time prior to the maturity date, subject to the Company completing
a reverse merger transaction in the United States, which was accomplished in
March 2004. On June 8, 2004, the lender converted the $500,000 loan into
2,000,000 shares of the Company's common stock at the agreed upon conversion
price of $0.25 per share. The lender is an unrelated party located outside the
United States.

The fair value of the beneficial conversion feature of this convertible loan was
determined to be $500,000, consisting of the aggregate fair value of the
difference between the $0.25 conversion price and the fair market value of the
Company's common stock of $0.60 per share, and was recorded as a reduction to
convertible notes payable and charged to operations as interest expense from
January 25, 2004 through the conversion date (June 8,2004), which resulted in a
charge to operations of $281,250 for the nine months ended September 30, 2004.
The unamortized deferred interest expense of $218,750 as of the conversion date
was charged to operations.

On March 12, 2004, the Company entered into a convertible loan agreement for
$200,000, with interest at 12%, payable at maturity. The loan was scheduled to
mature three months after funding. As part of the loan terms, the lender has the
right to convert the loan into shares of the Company's common stock at $0.25 per
share at any time prior to the maturity date, subject to the Company completing
a reverse merger transaction in the United States, which was accomplished in
March 2004. The loan was not funded until April 7, 2004. On June 8, 2004, the
lender converted the $200,000 loan into 800,000 shares of the Company's common
stock at the agreed upon conversion price of $0.25 per share. The lender is an
unrelated party located outside the United States.

The fair value of the beneficial conversion feature of this convertible loan was
determined to be $200,000, consisting of the aggregate fair value of the
difference between the $0.25 conversion price and the fair market value of the
Company's common stock of $0.60 per share, and was recorded as a reduction to
convertible notes payable and charged to operations as interest expense from
April 7, 2004 through the conversion date (June 8, 2004), which resulted in a
charge to operations of $133,333 for the nine months ended September 30, 2004.
The unamortized deferred interest expense of $66,667 as of the conversion date
was charged to operations.

On April 12, 2004, the Company entered into an agreement with China Agricultural
University to acquire patent no. ZL 93101635.5 entitled "Highly Effective
Composite Bacteria for Enhancing Yield and the Related Methodology for
Manufacturing", which was originally granted by the PRC Patent Bureau on July
12, 1996. The purchase consideration was $480,411, of which $30,205 was paid at
signing of the agreement and an additional $30,206 was still outstanding and
accrued at September 30, 2004. In addition, the Company issued 1,000,000 shares
of common stock valued at $0.42 per share based on its fair market value on July
20, 2004 (aggregate value $420,000), the date when the application for the
patent right holder alternation registration was approved. The Company plans to
utilize the patent to develop a new series of products that complement to its
current products and create a comprehensive product pipeline.

On May 24, 2004, the Company entered into a contract with Cinapsys, Inc. to
provide investor relations services. The engagement is for a period of twelve
months and provides for a monthly retainer of $4,000 and the issuance of 75,000
shares of common stock. The Company recorded a prepaid expense of $33,750 based
on the closing price of its common stock on the effective date of the agreement
and is amortizing such amount to operations over the 12 month contract period.

On June 3, 2004, a majority of the Company's stockholders approved the following
items by written consent:

(1) Approval of an amendment to the Company's Second Restated and Amended
Articles of Incorporation to (a) increase from 50,000,000 to
100,000,000 the authorized number of shares of the Company's common
stock and (b) authorize 20,000,000 shares of "blank check" preferred
stock (the rights, preferences, privileges and restrictions to be
determined by the board of directors). The amendment was effective on
July 16, 2004.
(2) Adoption of the Company's 2004 Stock Incentive Plan. The plan reserved
1,047,907 shares of the Company's common stock for the issuance of
stock options and stock purchase rights under the plan, of which not
more than 350,000 shares may be granted to any participant in any
fiscal year.
(3) Reincorporation of the Company from the State of Utah to the State of
Delaware. The reincorporation was effective on July 22, 2004.

On July 6, 2004, the Company entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, LP. Under the Standby Equity
Distribution Agreement, the Company may, at its discretion, periodically issue
and sell to Cornell Capital Partners, LP common stock for a total purchase price
of up to $10,000,000. The purchase price for the shares is equal to 99% of the
market price, which is defined in the Standby Equity Distribution Agreement as
the lowest volume weighted average price of the common stock during the five
trading days following the notice date. The amount of each cash advance is
subject to a maximum advance amount of $500,000, with no cash advance occurring
within seven trading days of a prior advance. Cornell Capital Partners, LP
received a one-time commitment fee of 704,039 shares of the Company's common
stock following execution of the Agreement on July 29, 2004, which was treated
as a reduction of the proceeds. Cornell Capital Partners, LP will be paid a fee
equal to 4% of each advance, to be retained from each advance. In connection
with the Standby Equity Distribution Agreement, the Company also entered into a
Placement Agent Agreement with Newbridge Securities Corporation, a registered
broker-dealer. On July 29, 2004, the Company paid Newbridge Securities
Corporation a one-time placement agent fee of 26,567 shares of common stock with
a value of approximately $10,000 based on the volume weighted average price of
the Company's common stock as quoted by Bloomberg, LP on the date of the
Placement Agent Agreement which was treated as a reduction of the proceeds. The
sale of shares under the Standby Equity Distribution Agreement is conditioned
upon the Company's registering the shares of common stock with the Securities
and Exchange Commission.

On September 13, 2004, the Company issued 892,857 shares of common stock to
Stubbs Alderton and Markiles, LLP, with an aggregate value of $125,000, as
payment for legal fees incurred during 2004.

On September 23, 2004, the Company entered into a convertible loan agreement for
$350,000 with interest at 10% per annum, together with 1,050,000 detachable
warrants, issuable at the execution of this agreement. The loan is scheduled to
mature on March 23, 2005. As part of the loan terms, the lender has the right to
convert the loan into shares of the Company's common stock at $0.20 per share at
any time prior to the maturity date of the loan. The lender is an unrelated
party located in the United States. Each warrant entitles the holder to
subscribe for one share of common stock of the Company at an exercise price of
$0.20 per share through September 23, 2007, representing 182% of the closing
prices of the Company's common stock on September 23, 2004. None of the
detachable warrants were exercised during the nine months ended September 30,
2004. The intrinsic value of the detachable warrants was determined to be
$82,559, calculated pursuant to the Black Scholes option pricing model in
accordance with EITF Issue No 00-27. This intrinsic value has been recorded as a
reduction to the convertible loan and has been credited to additional paid-in
capital, and is being amortized on the straight-line basis over the term of the
loan with the amounts amortized being recognized as interest expense. Any
unamortized discount remaining at the date of conversion of the loan will be
recognized as interest expense in the period the conversion takes place. In

addition, the Company's CEO also executed a guarantee of repayment of the loan
which is secured by shares of the Company's common stock that he owns.

In connection with the convertible loan agreement, the Company recorded deferred
debt issuance costs of $32,000, consisting of the direct costs incurred for the
issuance of the convertible loan. Debt issuance costs are being amortized on the
straight-line method over the term of the convertible loan, with the amounts
amortized being recognized as interest expense. Any unamortized debt issuance
costs remaining at the date of conversion of the loan will be recognized as
interest expense in the period the conversion takes place.

9. MAJOR CUSTOMERS AND SUPPLIERS

Three customers accounted for 59.0%, 39.2% and 1.8% of the Company's net sales
and 48.7%, 34.3% and 1.1% of the Company 's net sales for the three months and
nine months ended September 30, 2004 respectively. The Company did not have any
sales for the three months and nine months ended September 30, 2003.

Four suppliers accounted for 51.4%, 37.5% and 4.0% and 2.4% of the Company's net
purchases and 40.8%, 29.8%, 6.1% and 3.1% of the Company's net purchases for the
three months and nine months ended September 30, 2004 respectively. The Company
had minimal purchases for the three months and nine months ended September 30,
2003.

10. COMMITMENTS AND CONTINGENCIES:

The Company has the following material contractual obligations and capital
expenditure commitments:

On September 27, 2004, the Company entered into consulting service agreements
with three consultants, under which the Consultants shall receive 200,000
shares, 200,000 shares and 165,000 shares of the Company's common stock for
service periods of six months, four months and three months from the agreement
date, respectively. The market price was $0.10 on September 27, 2004. As of
September 30, 2004, none of these shares have been issued and none of the
services have been performed.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This Quarterly Report on Form 10-QSB for the quarterly period ended September
30, 2004 contains "forward-looking" statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, including statements that include the
words "believes", "expects", "anticipates", or similar expressions. These
forward-looking statements include, among others, statements concerning our
expectations regarding our working capital requirements, financing requirements,
its business, growth prospects, competition and results of operations, and other
statements of expectations, beliefs, future plans and strategies, anticipated
events or trends, and similar expressions concerning matters that are not
historical facts. The forward-looking statements in this Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 2004 involve known and
unknown risks, uncertainties and other factors that could cause our actual
results, performance or achievements to differ materially from those expressed
in or implied by the forward-looking statements contained herein.

OVERVIEW:

Kiwa Bio-Tech Products Group Corporation intends to develop, manufacture,
distribute and market innovative, cost-effective and environmentally safe
bio-technological products for the agricultural, natural resources and
environmental protection markets, primarily in the Peoples Republic of China. We
intend to improve existing products and to develop new products. Our activities
to date have included conducting research and development, acquiring and
developing intellectual property, raising capital, development of a
manufacturing facility and identification of strategic acquisitions and
execution of sales in selected major agricultural markets in China. Our first
product, a photosynthesis biological catalyst, was introduced in the China
agricultural market in November 2003. We are a development stage entity.

MAJOR CUSTOMERS AND SUPPLIERS:

Three customers accounted for 59.0%, 39.2% and 1.8% of our net sales and 48.7%,
34.3% and 1.1% of our net sales for the three months and nine months ended
September 30, 2004 respectively. We did not have any sales for the three months
and nine months ended September 30, 2003.

Four suppliers accounted for 51.4%, 37.5% and 4.0% and 2.4% of our net purchases
and 40.8%, 29.8%, 6.1% and 3.1% of our net purchases for the three months and
nine months ended September 30, 2004 respectively. We had minimal purchases for
the three months and nine months ended September 30, 2003.

TRENDS AND UNCERTAINTIES IN REGULATION AND GOVERNMENT POLICY IN PEOPLE'S
REPUBLIC OF CHINA

AGRICULTURAL POLICY CHANGES IN CHINA

After over ten years of economic growth, China now faces an imbalance between
urban and rural environments as well as the manufacturing and agricultural
industries. On February 10, 2004, the Chinese central government issued a new
policy to correct the imbalance by offering favorable taxation of agricultural
products. Existing agricultural products will be taxed at a rate of 1%. We
should benefit from this favorable taxation rate as farmers will retain more of
their income and will most likely spend some of that income on our products. In
addition, we anticipate receiving additional governmental support in marketing
our products to farmers due to additional procedural changes included with the
new policy.

GENERAL FISCAL AND MONETARY POLICY CHANGES IN CHINA

Recently China adopted restricted fiscal and monetary policies to fight
potential inflation. However, "People's Daily," the Chinese communist party's
major news paper, stated on August 10, 2004, that the agricultural area has been
one of a few industries which will continue to enjoy expansionary policy. The
article noted that the Chinese government will continue to increase investment
in agricultural development. We have previously benefited from these policies,
as evidenced by our receipt of a non-interest bearing loan from the government
in the amount of approximately $304,000 in June 2004. However, if these
financing programs are not available in the future, we may have to borrow on
terms which are less favorable to us, or we may not be able to borrow additional
funds at all on terms which are acceptable.

FOREIGN INVESTMENT POLICY CHANGES

The Chinese government is considering changes to its current policy, which
provides favorable tax treatment to foreign invested enterprises as compared to
Chinese domestic business. The new policy under consideration will treat the
foreign invested enterprises the same as Chinese domestic enterprises. As a
result, new foreign invested enterprises will no longer enjoy the favorable tax
treatment as in effect under current tax laws (no income taxes for the first two
years of operations and, and income taxed at one half of

the normal rate for the next three years) previously given to foreign invested
enterprises. However, the proposed new policy is not expected to have an impact
on companies like ours, which have already been granted such tax treatment. If
we were to be subject to such new policies, our tax rate and tax liability would
increase.

FOREIGN EXCHANGE POLICY CHANGES

China is considering allowing its currency to be freely exchangeable for other
major currencies. This change will result in greater liquidity for revenues
generated in Renminbi. We would benefit by having easier access to and greater
flexibility with capital generated in and held in the form of Renminbi. The
majority of our assets are located in China and all of our earnings are
currently generated in China, and are therefore denominated in Renminbi. Changes
in the exchange from Renminbi to U.S. Dollars will have impact on our reported
results of operations and financial condition. In the event that Renminbi
appreciates over the next year as compared to the U.S. Dollar, our earnings will
benefit from the appreciation of the Renminbi. However, if we have to use U.S.
Dollars to invest in our Chinese operations, we will suffer from the
depreciation of U.S. Dollars against the Renminbi. On the other hand, if the
value of the Renminbi were to depreciate compared to the U.S. Dollar, then our
reported earnings and financial condition would be adversely affected when
converted to U.S. Dollars.

CRITICAL ACCOUNTING POLICIES:

We prepared the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amount of revenues and expenses during the reporting
period. Management periodically evaluates the estimates and judgments made.
Management bases its estimates and judgments on historical experience and on
various factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates as a result of different
assumptions or conditions.

The following critical accounting policies affect the more significant judgments
and estimates used in the preparation of our consolidated financial statements.

ACCOUNTS RECEIVABLE

We perform ongoing credit evaluations of our customers and intend to establish
an allowance for doubtful accounts when amounts are not considered fully
collectable. As of September 30, 2004, receivables between the ages of 1-30 days
accounted for 56.76%; receivables between the ages of 31-60 days accounted for
0.65%; receivables between the ages of 61-90 days accounted for 1.54%;
receivables between the ages of 91-120 days accounted for 29.55%; and
receivables between the ages of 121-365 days accounted for 11.47% of total
accounts receivable. We believe that the accounts receivable balance at
September 30, 2004 is fully collectible.

We require our customers to pay between 20% and 60% of the purchase price of an
order placed, depending on the results of our credit investigations, prior to
shipment. The remaining balance is due within 90 days, unless other terms are
approved by management. We maintain a policy that all sales are final we do not
allow returns. However, in the event of defective products, we may allow
customers to exchange the defective products for new products within 90 days of
delivery and prior to the product's expiration date. In the event of any
exchange, the customers pay all transportation expenses and 10% of packing costs
for the exchange.

INVENTORIES

Inventories are stated at the lower of cost or net realizable value. Cost is
determined on the weighted average method. Inventories include raw materials,
work-in-progress, finished goods and low-value consumables. Net realizable value
is the estimated selling price in the ordinary course of business, less
estimated costs to complete and dispose.

REVENUE RECOGNITION

We recognize revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements".
Sales represent the invoiced value of goods, net of value added tax, supplied to
customers, and are recognized upon delivery of goods and passage of title.

IMPAIRMENT OF ASSETS

Our long-lived assets consist of property and equipment, and intangible asset.
At September 30, 2004, the net value of property and equipment, and intangible
asset was $1,445,121 and $473,739 respectively, which represented approximately
43% and 14% of our total assets respectively. At December 31, 2003, the net
value of property and equipment, and intangible asset was $1,477,148 and nil
respectively, which represented approximately 69% and nil of our total assets
respectively.

We periodically evaluate our investment in long-lived assets, including property
and equipment, and intangible asset, for recoverability whenever events or
changes in circumstances indicate the net carrying amount may not be
recoverable. Our judgments regarding potential impairment are based on legal
factors, market conditions and operational performance indicators, among others.
In assessing the impairment of property and equipment, and intangible asset, we
make assumptions regarding the estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or the
related assumptions change in the future, we may be required to record
impairment charges for these assets.

INCOME TAXES

We record a valuation allowance to reduce our deferred tax assets arising from
net operating loss carryforwards to the amount that is more likely than not to
be realized. In the event we were to determine that we would be able to realize
our deferred tax assets in the future in excess of its recorded amount, an
adjustment to the deferred tax assets would be credited to operations in the
period such determination was made. Likewise, should we determine that we would
not be able to realize all or part of our deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to operations in the
period such determination was made.

RESULTS OF OPERATIONS:

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003:

Net sales were $407,884 for the three months ended September 30, 2004. We did
not have any sales for the three months ended September 30, 2003. The
introduction of new products and development of customer base from the end of
2003 to 2004 has resulted in the continuous growth of net sales.

Net sales were $701,101 for the nine months ended September 30, 2004. We did not
have any sales for the nine months ended September 30, 2003. The increase in net
sales is the result of our products being introduced to the market in November
2003.

Cost of sales was $170,387 for the three months ended September 30, 2004,
including depreciation and amortization of $9,913.

Cost of sales was $277,688 for the nine months ended September 30, 2004,
including depreciation and amortization of $28,679.

Gross profit was $237,497, or 58% of net sales, for the three months ended
September 30, 2004.

Gross profit was $423,413, or 60% of net sales, for the nine months ended
September 30, 2004.

Consulting and professional fees were $186,075 for the three months ended
September 30, 2004. We did not have any consulting and professional fees for the
three months ended September 30, 2003. The increase in consulting and
professional fees in the three months ended September 30, 2004 is primarily
attributable to activities relating to fundraising, investor relations and
public company operations.

Consulting and professional fees were $285,535 for the nine months ended
September 30, 2004. We did not have any consulting and professional fees for the
nine months ended September 30, 2003. The increase in consulting and
professional fees in 2004 is primarily attributable to activities relating to
fundraising, investor relations and public company operations.

Directors' compensation was $2,175 for the three months ended September 30,
2004, as compared to $2,175 for the three months ended September 30, 2003.

Directors' compensation was $22,473 for the nine months ended September 30,
2004, as compared to $19,730 for the nine months ended September 30, 2003.

General and administrative expense decreased $8,170, or 5%, to $160,245 for the
three months ended September 30, 2004, as compared to $168,415 for the three
months ended September 30, 2003.

General and administrative expense was $436,234 for the nine months ended
September 30, 2004, as compared to $254,837 for the nine months ended September
30, 2003, an increase of $181,397 or 71%, primarily as a result of increased
personnel-related costs in China amounting to $66,539 for the nine months ended
September 30, 2004 reflecting an increased level of business activities and
increased personnel-related costs in the United States amounting to $102,446 for
the nine months ended September 30, 2004 following commencement of the
operations in the United States in April 2004. General and administrative
expenses mainly include salaries, travel and entertainment, rent, office
expense, telephone expense and insurance costs.

Research and development expense decreased $2,952, or 17%, to $14,195 for the
three months ended September 30, 2004, as compared to $17,147 for the three
months ended September 30, 2003.

Research and development expense decreased $3,105, or 7%, to $40,946 for the
nine months ended September 30, 2004, as compared to $44,051 for the nine months
ended September 30, 2003.

Depreciation and amortization, excluding depreciation and amortization included
in cost of sales, increased $14,274, or 414%, to $17,725 for the three months
ended September 30, 2004, as compared to $3,451 for the three months ended
September 30, 2003. This increase is the result of completion of Phase I of our
manufacturing facility construction in late 2003 and the amortization of a newly
acquired patent in July 2004.

Depreciation and amortization, excluding depreciation and amortization included
in cost of sales, increased $28,148, or 396%, to $35,260 for the nine months
ended September 30, 2004, as compared to $7,112 for the nine months ended
September 30, 2003. This increase is the result of completion of Phase I of our
manufacturing facility construction in late 2003 and the amortization of a newly
acquired patent in July 2004.

We did not have any reverse merger costs relating to our March 2004 merger with
a United States public company for the three months ended September 30, 2003 and
2004.

Reverse merger costs relating to March 2004 merger were $1,417,434 for the nine
months ended September 30, 2004, including non-cash costs relating to the
issuance of stock options and warrants of $1,114,380. We did not have any
reverse merger costs for the nine months ended September 30, 2003.

Interest expense increased $5,708, or 127%, to $10,194 for the three months
ended September 30, 2004, as compared to interest expense of $4,486 for the
three months ended September 30, 2003. This increase is due to increased
borrowing during the period in between.

Interest expense increased $41,968, or 1,082%, to $45,845 for the nine months
ended September 30, 2004, as compared to interest expense of $3,877 for the nine
months ended September 30, 2003. This increase is due to increased borrowing
during the period in between.

Amortization of Beneficial Conversion Feature of Convertible Notes Payable. On
January 25, 2004, we entered into a convertible loan agreement for $500,000,
with interest at 12%, payable at maturity. The loan was scheduled to mature on
September 25, 2004. As part of the loan terms, the lender has the right to
convert the loan into shares of our common stock at $0.25 per share at any time
prior to the maturity date, subject to our completion of a reverse merger
transaction in the United States, which was accomplished in March 2004. On June
8, 2004, the lender converted the $500,000 loan into 2,000,000 shares of our
common stock at the agreed upon conversion price of $0.25 per share. The lender
is an unrelated party located outside the United States. The fair value of the
beneficial conversion feature of this convertible loan was determined to be
$500,000, consisting of the aggregate fair value of the difference between the
$0.25 conversion price and the fair market value of our common stock of $0.60
per share, and was recorded as a reduction to convertible notes payable and
charged to operations as interest expense from January 25, 2004 through the
conversion date (June 8, 2004), which resulted in a charge to operations of
$281,250 for the nine months ended September 30, 2004. The unamortized deferred
interest expense of $218,750 as of the conversion date was charged to operations
as interest expense.

On March 12, 2004, we entered into a convertible loan agreement for $200,000,
with interest at 12%, payable at maturity. The loan was scheduled to mature
three months after funding. As part of the loan terms, the lender had the right
to convert the loan into shares of our common stock at $0.25 per share at any
time prior to the maturity date, subject to our completion of a reverse merger
transaction in the United States, which was accomplished in March 2004. The loan
was not funded until April 7, 2004. On June 8, 2004, the lender converted the
$200,000 loan into 800,000 shares of our common stock at the agreed upon
conversion price of $0.25 per share. The lender is an unrelated party located
outside the United States. The fair value of the beneficial conversion feature
of this convertible loan was determined to be $200,000, consisting of the
aggregate fair value of the difference between the $0.25 conversion price and
the fair market value of our common stock of $0.60 per share, and was recorded
as a reduction to convertible notes payable and charged to operations as
interest expense from April 7, 2004 through the conversion date (June 8, 2004),
which resulted in a charge to operations of $133,333 for the nine months ended
September 30, 2004. The unamortized deferred interest expense of $66,667 as of
the conversion date was charged to operations as interest expense.

Net loss decreased $42,562 to $153,112 for the three months ended September 30,
2004, as compared to $195,674 for the three months ended September 30, 2003. The
decrease in net loss in the current period is primarily because of the
continuing increase in revenue since late 2003.

Net loss increased $2,230,707 to $2,560,314 for the nine months ended September
30, 2004, as compared to $329,607 for the nine

months ended September 30, 2003. The increased net loss in the current period is
primarily the result of charges related to the reverse merger, consulting and
professional fees, convertible notes, and start of operations in the United
States in April 2004.

JUNE 5, 2002 (INCEPTION) TO SEPTEMBER 30, 2004 (CUMULATIVE):

Net sales were $741,132 for the period June 5, 2002 (Inception) to September 30,
2004 (Cumulative).

Cost of sales was $307,982 for the period June 5, 2002 (Inception) to September
30, 2004 (Cumulative), including depreciation and amortization of $46,682.

Gross profit was $433,150 or 58% of net sales for the period June 5, 2002
(Inception) to September 30, 2004 (Cumulative).

Consulting and professional fees were $853,138 for the period June 5, 2002
(Inception) to September 30, 2004 (Cumulative), including non-cash costs
relating to the issuance of common stock in December 2003 of $425,000, in July
2004 of $10,000, and in September 2004 of $87,838.

Directors' compensation was $370,489 for the period June 5, 2002 (Inception) to
September 30, 2004 (Cumulative), including non-cash costs relating to the
issuance of common stock in December 2003 of $325,000.

General and administrative expense was $805,169 for the period June 5, 2002
(Inception) to September 30, 2004 (Cumulative). General and administrative
expense mainly includes salaries, travel and entertainment, rent, office
expense, telephone expense and insurance costs.

Research and development expense was $110,545 for the period June 5, 2002
(Inception) to September 30, 2004 (Cumulative).

Depreciation and amortization, excluding depreciation and amortization included
in cost of sales, was $54,150 for the period June 5, 2002 (Inception) to
September 30, 2004 (Cumulative).

Reverse merger costs relating to our March 2004 merger with a United States
public company were $1,467,770 for the period June 5, 2002 (Inception) to
September 30, 2004 (Cumulative), including non-cash costs relating to the
issuance of stock options and warrants of $1,114,380.

Interest expense was $58,326 for the period June 5, 2002 (Inception) to
September 30, 2004 (Cumulative).

Amortization of Beneficial Conversion Feature of Convertible Notes Payable. On
January 25, 2004, we entered into a convertible loan agreement for $500,000,
with interest at 12%, payable at maturity. The loan was scheduled to mature on
September 25, 2004. As part of the loan terms, the lender had the right to
convert the loan into shares of our common stock at $0.25 per share at any time
prior to the maturity date, subject to our completion of a reverse merger
transaction in the United States, which was accomplished in March 2004. On June
8, 2004, the lender converted the $500,000 loan into 2,000,000 shares of our
common stock at the agreed upon conversion price of $0.25 per share. The lender
is an unrelated party located outside the United States. The fair value of the
beneficial conversion feature of this convertible loan was determined to be
$500,000, consisting of the aggregate fair value of the difference between the
$0.25 conversion price and the fair market value of our common stock of $0.60
per share, and was recorded as a reduction to convertible notes payable and
charged to operations as interest expense from January 25, 2004 through the
conversion date (June 8, 2004), which resulted in a charge to operations of
$281,250 for the period June 5, 2002 (Inception) to September 30, 2004
(Cumulative). The unamortized deferred interest expense of $218,750 as of the
conversion date was charged to operations as interest expense.

On March 12, 2004, we entered into a convertible loan agreement for $200,000,
with interest at 12%, payable at maturity. The loan was scheduled to mature
three months after funding. As part of the loan terms, the lender had the right
to convert the loan into shares of our common stock at $0.25 per share at any
time prior to the maturity date, subject to our completion of a reverse merger
transaction in the United States, which was accomplished in March 2004. The loan
was not funded until April 7, 2004. On June 8, 2004, the lender converted the
$200,000 loan into 800,000 shares of our common stock at the agreed upon
conversion price of $0.25 per share. The lender is an unrelated party located
outside the United States. The fair value of the beneficial conversion feature
of this convertible loan was determined to be $200,000, consisting of the
aggregate fair value of the difference between the $0.25 conversion price and
the fair market value of our common stock of $0.60 per share, and was recorded
as a reduction to convertible notes payable and charged to operations as
interest expense from April 7, 2004 through the conversion date (June 8, 2004),
which resulted in a charge to operations of $133,333 for the period June 5, 2002
(Inception) to September 30, 2004 (Cumulative). The unamortized deferred
interest expense of $66,667 as of the conversion date was charged to operations
as interest expense.

Net loss was $3,986,437 for the period June 5, 2002 (Inception) to September 30,
2004 (Cumulative).

LIQUIDITY AND CAPITAL RESOURCES:

Since inception in 2002, we have relied on the proceeds from the sale of our
equity securities and loans from both unrelated and related parties to provide
the resources necessary to fund the development of our business plan and
operations. During the nine months ended September 30, 2004, we raised
$1,050,000 in the form of three convertible notes payable and obtained a
government preferential note of approximately $304,000.

We are in the development stage and will require additional capital to fund our
business plan, and are continuing to develop our manufacturing facility and have
not generated significant revenues from our planned principal operations.

At September 30, 2004 and December 31, 2003, we had cash of $342,133 and
$48,730, respectively. At September 30, 2004 and 2003, our net working capital
deficiency was $94,656 and $585,313, respectively, reflecting current ratios of
0.94:1 and 0.53:1, respectively, at such dates.

During the nine months ended September 30, 2004, our operations utilized cash of
$974,747, as compared to $542,302 utilized for the nine months ended September
30, 2003, as a result of an increased level of business activity and the costs
associated with operating a public company. For the period June 5, 2002
(Inception) to September 30, 2004 (Cumulative), our operations utilized cash of
$1,198,587.

During the nine months ended September 30, 2004, we utilized $54,406 in
investing activities, as compared to $884,745 for the nine months ended
September 30, 2003, for the purchase of property and equipment. For the period
June 5, 2002 (Inception) to September 30, 2004 (Cumulative), we utilized
$1,567,022 in investing activities for the purchase of property, equipment and
intangible asset.

During the nine months ended September 30, 2004, we generated $1,322,556 from
financing activities, consisting of the proceeds from three convertible notes
payable of $1,050,000, decrease in restricted cash of $300,000 and increases in
long-term borrowings of $326,217, offset in part by the repayment of short-term
and long-term loans of $283,930 and $69,731 respectively. During the nine months
ended September 30, 2003, we generated $ 1,123,261 from financing activities
through an increase in short-term loans and long-term borrowings.

For the period June 5, 2002 (Inception) to September 30, 2004 (Cumulative), we
generated $3,107,742 from financing activities, consisting of the proceeds from
the sale of common stock of $465,000, the proceeds from convertible notes
payable of $1,150,000, and increases in short-term and long-term borrowings of
$283,930 and $1,566,299 respectively, offset in part by the repayment of
short-term and long-term loans of $283,930 and $73,557 respectively.

Long-term borrowings consist primarily of unsecured, non-interest bearing notes
payable to the local Chinese government that do not mature until three years
after our Chinese operations reach defined levels of profitability and other
government non-interest bearing notes payable that do not mature until our
Chinese operations earn a profit. As of September 30, 2004, we have the
following long-term loans from the government:

o From November 28, 2002 to February 1, 2004, we borrowed an
aggregate of approximately $1,087,390 from the local
government in Zoucheng City in Shandong, China. This is an
interest free loan with an unfixed repayment period. The terms
provide that repayment will begin in the first year after our
Chinese subsidiary becomes profitable and will be repaid in
full within three years after the repayment obligations begin.

o On June 21, 2004, we borrowed approximately $304,000 from the
local government in Zoucheng City in Shandong, China. This is
an interest free loan with an unfixed repayment period. The
terms provide that repayment will begin in the first year
after our Chinese subsidiary becomes profitable, we will be
required to pay 10% of annual net profit of the subsidiary to
the lender until the loan is repaid in full.

We qualified for the non-interest bearing loans under a government sponsored
program to encourage economic development in certain industries and locations.
To qualify for the favorable loan terms, a company must meet the following
criteria: (1) a technology company with innovative technology or product (as
determined by the Science Bureau of central government); (2) operate in specific
industries, such as agriculture, environmental, education, and others, which the
government has determined to encourage development; and (3) be located in
undeveloped areas such as Zoucheng Shandong where our facility located.

We do not anticipate generating sufficient positive internal operating cash flow
to fund our planned operations until such time as we generate substantial
revenues, which may take the next few years to fully realize. In the event we
cannot obtain the necessary capital to pursue our strategic plan, we may have to
cease or significantly curtail our operations.

Over the next twelve months, we believe that existing capital and anticipated
funds from operations will not be sufficient to sustain operations and planned
expansion. However, our near term cash requirements are anticipated to be offset
through the receipt of funds through the Standby Equity Distribution Agreement
with Cornell Capital Partners, LP and through other private placement offerings
and loans obtained through private sources. Once this registration statement
becomes effective we anticipate being able to use the cash advances from Cornell
Capital Partners, LP to finance our operations. If, however, these cash advances
are unavailable, we will be required to seek additional capital in the future to
fund growth and expansion through additional equity or debt financing or credit
facilities. No assurance can be made that such financing would be available, and
such financing, if available, could have a negative impact on our financial
condition.

INFLATION AND CURRENCY MATTERS:

In the most recent decade, the Chinese economy has experienced periods of rapid
economic growth as well as relatively high rates of inflation, which in turn has
resulted in the periodic adoption by the Chinese government of various
corrective measures designed to regulate growth and contain inflation. Our
success depends in substantial part on the continued growth and development of
the Chinese economy.

Foreign operations are subject to certain risks inherent in conducting business
abroad, including price and currency exchange controls, and fluctuations in the
relative value of currencies. We conduct virtually all of its business in China
and, accordingly, the sale of our products is settled primarily in RMB. As a
result, devaluation or currency fluctuation of the RMB against the U.S. Dollars
would adversely affect our financial performance when measured in U.S. Dollars.
Although prior to 1994 the RMB experienced significant devaluation against the
U.S, Dollars, the RMB has remained fairly stable since then. In addition, the
RMB is not freely convertible into foreign currencies, and the ability to
convert the RMB is subject to the availability of foreign currencies. Effective
December 1, 1998, all foreign exchange transactions involving the RMB must take
place through authorized banks or financial institutions in China at the
prevailing exchange rates quoted by the People's Bank of China.

As China has recently been admitted as a member of the World Trade Organization,
the central government of China is expected to adopt a more rigorous approach to
partially deregulate currency conversion restrictions, which may in turn
increase the exchange rate fluctuation of the RMB. Should there be any major
change in the central government's currency policies, we do not believe that
such an action would have a detrimental effect on our operations, since we
conduct virtually all of our business in China, and the sale of its products is
settled in RMB.

The exchange rate was approximately US$1.00 to RMB 8.28 at September 30, 2004
and December 31, 2003.

COMMITMENTS AND CONTINGENCIES:

We have the following material contractual obligations and capital expenditure
commitments:

On September 27, 2004, the Company entered into consulting service agreements
with three consultants, under which the Consultants shall receive 200,000
shares, 200,000 shares and 165,000 shares of the Company's common stock for
service periods of six months, four months and three months from the agreement
date, respectively. The market price was $0.10 on September 27, 2004. As of
September 30, 2004, neither the shares have been issued, nor have the services
been performed.

OFF-BALANCE SHEET ARRANGEMENTS:

At September 30, 2004, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As such, we are not exposed to
any financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.

RECENT ACCOUNTING PRONOUNCEMENTS:

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments meets the
characteristics of a derivative and when a derivative contains a financing
component. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 did not have a significant
effect on our financial statement presentation or disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS No. 150 is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 did not have a
significant effect on our financial statement presentation or disclosures.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair market
value of the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The initial
recognition and measurement provisions of FIN 45 apply on a prospective basis to
guarantees issued or modified after December 31, 2002. We implemented the
disclosure provisions of FIN 45 in its December 31, 2002 consolidated financial
statements, and the measurement and recording provisions of FIN 45 effective
January 1, 2003. The implementation of the provisions of FIN 45 did not have a
significant effect on our consolidated financial statement presentation or
disclosures.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements",
relating to consolidation of certain entities. In December 2003, the FASB issued
a revised version of FIN 46 ("FIN 46R") that replaced the original FIN 46. FIN
46R requires identification of a company's participation in variable interest
entities ("VIEs"), which are defined as entities with a level of invested equity
that is not sufficient to fund future activities to permit it to operate on a
standalone basis. For entities identified as a VIE, FIN 46R sets forth a model
to evaluate potential consolidation based on an assessment of which party to the
VIE (if any) bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46R also sets forth certain
disclosures regarding interests in VIEs that are deemed significant, even if
consolidation is not required. The Company is not currently participating in, or
invested in any VIEs, as defined in FIN 46R. The implementation of the
provisions of FIN 46R in 2003 did not have a significant effect on tour
consolidated financial statement presentation or disclosures.

RELATED PARTY TRANSACTIONS:

China Star Investment Group is a company which is 10% owned by a major
stockholder of our Company. The balance due to China Star at September 30, 2004
of $122,933 was primarily related to a loan from China Star and operating
expenses that China Star paid on our behalf. The balance due from China Star at
December 31, 2003 of $30,574 resulted from unsecured, non-interest bearing cash
advances which are due on demand.

In October 2003, we obtained a $100,000 loan from China Star. The loan was
scheduled to mature on October 20, 2004, and bears interest at 12% per annum,
payable at maturity. As part of the loan terms, China Star had the right to
convert the loan into shares of our common stock at $0.25 per share at any time
prior to the maturity date, subject to our completion of a reverse merger
transaction in the United States, which was accomplished in March 2004. China
Star has waived this conversion right. At September 30, 2004, the outstanding
unpaid balance due to China Star was $72,433.

CAUTIONARY STATEMENTS AND RISK FACTORS:

We operate in a market environment that is difficult to predict and that
involves significant risks and uncertainties, many of which will be beyond the
combined company's control. The accompanying information contained in these Risk
Factors identifies important factors that could cause such differences.

RISKS RELATED TO OUR BUSINESS

INVESTORS MAY NOT BE ABLE TO ADEQUATELY EVALUATE OUR BUSINESS DUE TO OUR SHORT
OPERATING HISTORY, LACK OF SIGNIFICANT REVENUE AND LIMITED PRODUCT OFFERINGS.
DUE TO THIS SHORT OPERATING HISTORY, WE HAVE NOT YET GENERATED ANY PROFITS AND
WILL REQUIRE ADDITIONAL FUNDING TO IMPLEMENT OUR BUSINESS PLAN. WE HAVE BEEN THE
SUBJECT OF A GOING CONCERN OPTION FOR THE YEAR ENDED DECEMBER 31, 2003 FROM OUR
INDEPENDENT ACCOUNTANTS.

We have only been operating our current business since June 2002,
providing a limited period for investors to evaluate our business model. Because
of this lack of operating history and the uncertain nature of the rapidly
changing markets that we serve, we believe the prediction of future results of
operation is difficult. We have generated insignificant revenue, have not been
profitable, and incurred net operating losses during our recent operating
history. From the inception of our current business on June 5, 2002 to September
30, 2004, we had accumulated losses of $3,986,437. We expect to continue to have
operating losses for the foreseeable future as we further our research and
continue to conduct product tests.

We currently have two commercial product lines, a bio-fertilizer and a
water treatment and pathogen suppression agent, and plan to market another three
to four products in the agriculture market in the next six to twelve months.
There can be no assurances that any of the intellectual property or products
intended to be developed by us will be marketed successfully or that ultimately
we can develop a sufficiently large production capacity and sufficiently large
customer demand to operate on a profitable basis. In addition, we are generally
required to obtain a license from China Agriculture Department, which can take
three to six months, prior to selling a new product. Until sufficient cash flow
is generated from operations, we will have to utilize our capital resources or
external sources of funding to satisfy our working capital needs. Furthermore,
our prospects must be evaluated in light of risks, uncertainties, expenses and
difficulties frequently encountered by companies in the early stage of their
development.

Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with our financial statements for the year
ended December 31, 2003, which states that the financial statements raise
substantial doubt as to our ability to continue as a going concern. As of
September 30, 2004, we had accumulated net loss of approximately $4.0 million.
Our ability to make operations profitable or obtain additional funding will
determine our ability to continue as a going concern. Our financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS.

Historically, our operating results and our industry have been subject
to seasonal trends when measured on a quarterly basis. This trend is dependent
on numerous factors, including the markets in which we operate, growing seasons,
customer demand, climate, economic conditions and numerous other factors beyond
our control. Generally, we expect the second and third quarters are stronger
than the first and fourth quarters due to the growing seasons in our primary
markets. There can be no assurance that the historic operating patterns will
continue in future periods.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY RESULT IN
VOLATILITY OR HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

We have experienced, and expect to continue to experience, substantial
variation in our net sales and operating results from quarter to quarter. Our
business is subject to seasonal fluctuations due to growing seasons in different
markets. We believe the factors that influence this variability of quarterly
results include:

o the timing and size of orders from major customers;

o budgeting and purchasing cycles of customers;

o the timing of enhancements to products or new products
introduced by us or our competitors;

o changes in pricing policies made by us, our competitors or
suppliers, including possible decreases in average selling
prices of products in response to competitive pressures; and

o fluctuations in general economic conditions.

We may also choose to reduce prices or to increase spending in response
to competition or to pursue new market opportunities. Due to fluctuations in our
revenue and operating expenses, we believe that period-to-period comparisons of
our results of operations are not a good indication of our future performance.
It is possible that in some future quarter or quarters, our operating results
will be below the expectations of securities analysts or investors. In that
case, our stock price could fluctuate significantly or decline.

Since January 1, 2002, the market price for our comment stock as quoted
on the OTC Bulletin Board has ranged from $0.05 to $1.00 (adjusted for stock
splits). High volatility in the market price of our common stock may result in
lower prices for our common stock, making it more difficult for us to obtain
equity financing on terms and conditions which are favorable to us, if at all.
We expect to continue to incur losses in the near future as we develop and
market our initial products. As a result, we will be dependent on additional
debt or equity financing to fund our operations. If such financing is not
available on terms which are acceptable to us, we may have to delay development
of new products and/or reduce sales and marketing efforts for our existing
products. Such actions may have an adverse effect on our results of operations.
In addition, uncertainties with respect to our ability to raise additional
capital would make operational planning more difficult for management.

REVOCATION OF OUR RIGHT TO USE PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS
COULD ADVERSELY IMPACT THE GROWTH OF OUR BUSINESS.

We have recently acquired a patent, titled "Highly Effective Composite
Bacteria for Enhancing Yield and the Related Methodology for Manufacturing,"
from China Agricultural University. While we do not yet have any commercial
products utilizing the technology covered by this patent, we plan to use the
patent to develop a new series of products that compliment our current products.
If our rights under this patent are challenged or if we default on our
obligations under applicable Chinese regulatory requirements, our right to use
that patent could be revoked and we would no longer be permitted to use that
patent in our research, development and sales activities. Such a revocation or
default could have an adverse impact on the growth of our business by reducing
the introduction of new products, and consequently, sales.

OUR SUCCESS DEPENDS IN PART ON OUR SUCCESSFUL DEVELOPMENT AND SALE OF PRODUCTS
CURRENTLY IN THE RESEARCH AND DEVELOPMENT STAGE.

We currently have two commercial products based on photosynthesis
bacteria technology. The first is a bio-fertilizer called Photosynthesis
Biological Catalyst and the second is a water treatment and pathogen suppression
agent. We commenced sales of the powdered form Photosynthesis Biological
Catalyst in January 2004 and the liquid form in April 2004. We commenced sales
of our water treatment and pathogen suppression agent in April 2004. Many of our
product candidates are still in the research and development stage. The
successful development of new products is uncertain and subject to a number of
significant risks. Potential products that appear to be promising at early
states of development may not reach the market for a number of reasons,
including but not limited to, the cost and time of development. Potential
products may be found to be ineffective or cause harmful side effects, fail to
receive necessary regulatory approvals, be difficult to manufacture on a large
scale or be uneconomical or fail to achieve market acceptance. Our failure to
successfully develop and sell new products may delay or eliminate future
acquisition plans and would most likely slow our development. Our proprietary
products may not be commercially available for a number of years, if at all.

There can be no assurance that any of our intended products will be
successfully developed or that we will achieve significant revenues from such
products even if they are successfully developed. Our success is dependent upon
our ability to develop and market our products on a timely basis. There can be
no assurance that we will be successful in developing or marketing such products
or taking advantage of the perceived demand for such products. In addition,
there can be no assurance that products or technologies developed by others will
not render our products or technologies non-competitive or obsolete. The China
bio-fertilizer market is still in a very early stage and is very fragmented with
many potential customers, but with no single producer or small of group of
producers dominating the market. To some extend, however, we also competition
from large chemical fertilizer manufacturers in China, such as Sino-Arabic
Chemical Fertilizer Company in national markets as well as Red Sun Group in
Shandong and Jiangsu markets. These chemical fertilizer manufacturers have
provided chemical fertilizers to farmers in China for several years and
customers are more accustomed to using their established products as compared to
new products.

FAILURE TO ADEQUATELY EXPAND TO ADDRESS EXPANDING MARKET OPPORTUNITIES COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

We anticipate that a significant expansion of operations will be
required to address potential market opportunities. There can be no assurances
that we will expand our operations in a timely or sufficiently large manner to
capitalize on these market opportunities. The anticipated substantial growth is
expected to place a significant strain on our managerial, operational and
financial resources and systems. While management believes it must implement,
improve and effectively use our operational, management, research and
development, marketing, financial and employee training systems to manage
anticipated substantial growth, there can be no assurances that these practices
will be successful.

OUR SUCCESS DEPENDS IN PART UPON OUR ABILITY TO RETAIN AND RECRUIT KEY
PERSONNEL.

Our success is highly dependent upon the continued services of our
executive officers key product development personnel and key scientific
personnel, including without limitation, Wei Li, Da-chang Ju, Lian-jun Luo,
James Nian Zhan., Dr. Daniel Qu, Yuhong Pang, and Professor Guisheng Chen. Given
the intense competition for qualified management and product development
personnel in our industry, the loss of the services of any key management or
product development personnel may significantly and

detrimentally affect our business and prospects. We maintain employment
agreements with two of our key personnel in China: Lian-jun Luo and Qu Bin. The
material terms of these employment agreements include three-year terms,
provision for annual bonuses and stock option grants based on performance, and
severance of three month's base salary if these executives are laid off without
cause. We do not have employment agreements with any other members of management
or key personnel. While we have not experienced difficulty in attracting and
maintaining key personnel, there can be no assurance that we will be able to
retain these personnel, and it may be time consuming and costly to recruit
qualified replacement personnel.

WE CURRENTLY DO NOT HAVE SUFFICIENT REVENUES TO SUPPORT OUR BUSINESS ACTIVITIES
AND, IF OPERATING LOSSES CONTINUE, WE WILL REQUIRE ADDITIONAL FINANCING WHICH WE
MAY NOT BE ABLE TO SECURE.

We require substantial working capital to fund our business. In the
short term, we plan to continue building out our manufacturing facility, adjust
our product formula to improve product stability and optimize our product
offerings, expand our sales and marketing efforts in China, expand our
distribution base in China, introduce new products, and acquire 2 to 3 small or
medium sized bio-technology companies in the Chinese agricultural and/or
environmental markets. Over the next 24 months, we estimate that we will require
approximately $2.5 million for completion of construction of our manufacturing
facility and equipment investment, $1 million to consummate our planned
acquisitions, $600,000 in working capital and $500,000 in administrative and
operations expenses. In the long term, we plan to become a commercialization
platform for world-class biotechnological research and development results for
applications in agriculture, natural resources conservation and environmental
protection, launch our products in the United States and other markets, continue
our introduction of new products, create formal strategic alliances with
selected United States companies to co-develop and/or co-market products in the
United States and China, form an international biotechnology research center in
China for the research and development of agricultural, environmental and
medical applications.

Because we currently do not have sufficient revenues to support our
business activities, and if operating losses continue, we may be required to
raise additional capital to fund our operations and finance our research and
development activities. Funding, whether from a public or private offering of
debt or equity, a bank loan or a collaborative agreement, may not be available
when needed or on favorable terms. If we are unable to obtain necessary
financing in the amounts and on terms deemed acceptable, we may have to limit,
delay, scale back or eliminate our research and development activities or future
operations. Any of the foregoing may adversely affect our business.

ENTERING INTO EQUITY OR DEBT FINANCINGS COULD RESULT IN DILUTION TO EXISTING
STOCKHOLDERS.

We may be required to raise additional capital to fund our operations
and finance our research and development activities through a public or private
offering of debt or equity. Any equity financing could result in dilution to the
existing stockholders as a direct result of our issuance of additional shares of
our capital stock. Debt financings will result in interest expense and likely
subject us to negative covenants that would limit our operational flexibility,
and if convertible into equity, could also dilute then-existing stockholders.

THE RISKS ASSOCIATED WITH RAISING CAPITAL THROUGH COLLABORATIONS AND LICENSING
AGREEMENTS COULD ADVERSELY AFFECT OUR BUSINESS.

We may be required to raise additional capital to fund our operations
and finance our research and development activities through collaborative and/or
licensing agreements. Under these agreements, we may be subject to various
restrictive covenants which could significantly limit our operating and
financial flexibility and may limit our ability to respond to changes in our
business or competitive environment. If we are unable to obtain necessary
financing in the amounts and on terms deemed acceptable, we may have to limit,
delay, scale back or eliminate our research and development activities or future
operations. Any of the foregoing may adversely affect our business.

RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO EFFECTIVELY RECEIVE
AND USE OUR REVENUE.

Because almost all of our future revenues may be in the form of
Renminbi, China's currency which is denominated RMB, any future restrictions on
currency exchanges may limit our ability to use revenue generated in Renminbi to
fund our business activities outside China or to make dividend or other payments
in U.S. Dollars. Although the Chinese government introduced regulations in 1996
to allow greater convertibility of the Renminbi, for current account
transactions significant restrictions still remain, including primarily the
restriction that foreign invested enterprises may only buy, sell and/or remit
foreign currencies at those banks authorized to conduct foreign exchange
business after providing valid commercial documents. In addition, conversion of
Renminbi for capital account items, including direct investment and loans, is
subject to governmental approval in China, and companies are required to open
and maintain separate foreign exchange accounts for capital account items. We
cannot be certain that the Chinese regulatory authorities will not impose more
stringent restrictions on the convertibility of the Renminbi, especially with
respect to foreign exchange transactions.

We may also be subject to foreign exchange risk and foreign ownership
restrictions. The Chinese government is loosening its control on foreign
exchange transactions. More liberal foreign exchange policies will reduce our
foreign exchange risk by increasing the liquidity of revenues generated in
Renminbi. We do anticipate conducting operations in any countries other than
China and the United States over the next twenty-four months. Fluctuations in
the exchange rate of the Renminbi relative to the U.S. Dollar could adversely
affect our results of operations by affecting our reported earnings for any
given period. In addition, foreign ownership restrictions could also impact our
ability to expand our business through investment and acquisition opportunities.
If we are unable to pursue such strategic opportunities due to foreign ownership
regulations, the growth of our business could be limited.

CHANGES IN CHINA'S POLITICAL, SOCIAL, ECONOMIC OR LEGAL SYSTEMS COULD MATERIALLY
HARM OUR BUSINESS.

All of our manufacturing, production and sales occur in China.
Consequently, an investment in our common stock may be adversely affected by the
political, social and economic environment in China. Under its current
leadership, China has been pursuing economic reform policies, including the
encouragement of private economic activity and greater economic
decentralization. There can be no assurance, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successful if pursued, or that such policies will not be significantly altered
from time to time.

Our business and prospects are dependent upon agreements and regulatory
approval with various entities controlled by Chinese governmental
instrumentalities. Historically, our operations in China have received
relatively favorable treatment from these instrumentalities as a result of the
Chinese government's policies of encouraging economic development and
innovation, especially in underdeveloped regions. However, our operations and
prospects would be materially and adversely affected by a change in China's
economic policies, which could make it more difficult for us to obtain necessary
approvals from governmental authorities and to obtain economic incentives from
governmental authorities. In addition, if the Chinese government elects not to
honor certain contracts as a result of political change, it might be difficult
to enforce these contracts against such governmental entities in China. In
addition, the legal system of China relating to foreign investments is both new
and continually evolving, and currently there can be no certainty as to the
application of its laws and regulations in particular instances.

A SLOW-DOWN IN THE CHINESE ECONOMY MAY ADVERSELY EFFECT OUR GROWTH AND
PROFITABILITY.

The growth of the Chinese economy has been uneven across geographic
regions and economic sectors. There can be no assurance that growth of the
Chinese economy will be steady or that any recessionary conditions will not have
a negative effect on our business. Several years ago, the Chinese economy
experienced deflation, which may reoccur in the foreseeable future. In addition,
if an outbreak of SARS recurs, it may cause a decrease in the level of economic
activity and may adversely affect economic growth in China, Asia and elsewhere
in the world. The performance of the Chinese economy overall affects our
profitability as expenditures for agricultural technological products may
decrease due to slowing domestic demand.

OUR ABILITY TO GENERATE REVENUES COULD SUFFER IF THE CHINESE AG-BIOTECHNOLOGY
MARKET DOES NOT DEVELOP AS ANTICIPATED.

The agriculture-biotechnology market in China, the primary market in
which we do business, is in the early stages of development. While we believe
the market opportunity looks promising, we expect that the market will take
several years to develop. While it is difficult to project exactly how long it
will take to develop the ag-biotechnology industry in China, we anticipate that
it will take at least ten years to reach a level of development which is similar
to the current state of the industry in the United States. Successful
development of the ag-biotechnology market in China depends on the following:

o continuation of governmental and consumer trends favoring the
use of products and technologies designed to create
sustainable agriculture;

o educating the Chinese agricultural community and consumers
about the uses of ag-biotechnology products; and

o certain institutional developments such as governmental
agricultural subsidies designed to promote the use of
environmentally friendly ag-biotechnological products.

There are no assurances that these trends will continue, governmental
subsidies will be offered, or that the Chinese agricultural community and
consumers will be successfully educated about the uses of ag-biotechnology
products. The conduct of business in the ag-biotechnology market involves high
risks. There can be no assurances that the ag-biotechnology market in China will
develop sufficiently to facilitate our profitable operation. While we believe
that we will benefit from our first-mover advantage in a growing market,
existing competitors and new entrants in the ag-biotechnology market are
expected to create fierce competition in the future as the market evolves.
Competitors and new entrants may introduce new products into the market that may
detrimentally affect sales of our existing products, and consequently our
revenues. We intend to fund operations through sales, debt and equity financings
until such time as the ag-biotechnology market in China is sufficiently
developed to support our profitable operation.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND
MAY BE EXPOSED TO INFRINGEMENT CLAIMS FROM THIRD PARTIES.

Our success will depend in part on our ability to obtain patent
protection for our technology, to preserve our trade secrets and to operate
without infringing on the proprietary rights of third parties. We have several
trademarks registered in China, which will be protected by the trademark laws in
China for 10 years and are renewable at the expiration of the initial 10 year
term. In addition, we have recently acquired a patent from the China
Agricultural University entitled "Highly Effective Composite Bacteria for
Enhancing Yield and the Related Methodology for Manufacturing," which has a
remaining term of 9 years.

We may also file patents with the Chinese government and/or the U.S.
Patent and Trademark Office as we deem appropriate. There can be no assurance
that the patents applied for will be reviewed in a timely manner, that any
additional patents will issue or that any patents issued will afford meaningful
protection against competitors with similar technology or that any patents
issued will not be challenged by third parties. There also can be no assurance
that others will not independently develop similar technologies, duplicate our
technologies or design around our technologies whether or not patented. There
also can be no assurance that we will have sufficient resources to maintain a
patent infringement lawsuit should anyone be found or believed to be infringing
our patents. There also can be no assurance that the technology ultimately used
by us will be covered in any additional patent issued from our pending patent
application or other patent applications which we may file. We do not believe
that our technology infringes on the patent rights of third parties. However,
there can be no assurance that certain aspects of our technology will not be
challenged by the holders of other patents or that we will not be required to
license or otherwise acquire from third parties the right to use additional
technology. The failure to overcome such challenges or obtain such licenses or
rights on acceptable terms could have a material adverse affect on us, our
business, results of operations and financial condition.

The processes and know-how of importance to our technology are
dependent upon the skills, knowledge and experience of our technical personnel,
consultants and advisors and such skills, knowledge and experience are not
patentable. To help protect our rights, we require employees, significant
consultants and advisors with access to confidential information to enter into
confidentiality and proprietary rights agreements. There can be no assurance,
however, that these agreements will provide adequate protection for our trade
secrets, know-how or proprietary information in the event of any unauthorized
use or disclosure. There can be no assurance that we will be able to obtain a
license for any technology that we may require to conduct our business or that,
if obtainable, such technology can be licensed at a reasonable cost. The cost of
obtaining and enforcing patent protection and of protecting proprietary
technology may involve a substantial commitment of our resources. Any such
commitment may divert resources from other areas of our operations. We may be
required to license or sublicense certain technology or patents in order to
commence operations. There can be no assurance that we will be able to obtain
any necessary licenses or to do so on satisfactory terms. In addition, we could
incur substantial costs in defending ourselves against suits brought by other
parties for infringement of intellectual property rights.

WE MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY LITIGATION, THE DEFENSE OF WHICH
COULD ADVERSELY IMPACT OUR BUSINESS OPERATIONS.

Currently we have one patent in China (Patent #: ZL93 1 01635.5 and
International patent classification #: A01N 63/00), which covers six different
species of bacillus which have been tested as bio-fertilizers to enhance yield
and plant health as well as the production methods of the six species. Our
current products are not based on this patent, but are based on trade secrets
and know-how developed in-house. However our bio-organic fertilizer products in
development will be based on the patent and those products are expected be
introduced to the market in the early 2005. The patent will expire on February
19, 2013.

While we have not received any allegations, complaints or threats of
litigation relating to any intellectual property rights, we may, from time to
time, become involved in litigation regarding patent and other intellectual
property rights. From time to time, we may receive notices from third parties of
potential infringement and claims of potential infringement. Defending these
claims could be costly and time consuming and would divert the attention of
management and key personnel from other business issues. The complexity of the
technology involved and the uncertainty of intellectual property litigation
increase these risks. Claims of intellectual property infringement also might
require us to enter into costly royalty or license agreements. However, we may
be unable to obtain royalty or license agreements on terms acceptable to us, or
at all. In addition, third parties may attempt to appropriate the confidential
information and proprietary technologies and processes used in our business,
which we may be unable to prevent and which would harm the businesses and our
prospects.

WE FACE TECHNICAL RISKS ASSOCIATED WITH COMMERCIALIZING OUR TECHNOLOGY WHICH
COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS RESULTS AND OPERATIONS.

A key to our future success is the ability to produce our Ph-BC series
of products at lower costs than our competitors. Although we are currently
utilizing our proprietary technology to produce such products at lower costs,
our method for producing such products on a commercial basis has only recently
begun. Further, although results from recent independent tests and our early
production results have been encouraging, the ability of our technology to
commercially produce such products at consistent levels is

still being evaluated. There can be no assurance that we will continue to
produce such products at lower costs than our competitors, nor that our
technology will be able to commercially produce such products at consistent
levels.

WE DEPEND ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUE.

Three customers accounted for approximately 68% of our net sales for
the second quarter of fiscal year 2004. We do not have written agreements or
commitments with our customers for future purchases. The loss of any of our
significant customers would result in a material reduction in our sales and
results of operations. There can be no assurances that we will be able to retain
these customers or further expand our customer base to reduce our dependence on
a small number of customers. Our inability to generate new customers could
negatively impact our business and our ability to continue as a going concern.

RISK RELATED TO OUR COMMON STOCK

IF AN ACTIVE TRADING MARKET FOR OUR SECURITIES DOES NOT REMAIN IN EXISTENCE, THE
MARKET PRICE OF OUR SECURITIES MAY DECLINE AND STOCKHOLDERS' LIQUIDITY MAY BE
REDUCED.

Although our common stock is quoted on the OTC Bulletin Board, a
regular trading market for the securities may not be sustained in the future.
The OTC Bulletin Board is an inter-dealer, Over-The-Counter market that provides
significantly less liquidity than the NASD's automated quotation system. Quotes
for stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers as are those for the NASDAQ Stock Market. Therefore,
prices for securities quoted solely on the OTC Bulletin Board may be difficult
to obtain and holders of common stock may be unable to resell their securities
at or near their original offering price or at any price. As of September 21,
2004, we had 383 stockholders of record. As of October 6, 2004, the closing
price per share of common stock was $0.07 and the average daily trading volume
for the previous three months was 82,247 shares. Market prices for our common
stock will be influenced by a number of factors, including:

o the issuance of new equity securities;

o changes in interest rates;

o competitive developments, including announcements by
competitors of new products or services or significant
contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;

o variations in quarterly operating results;

o change in financial estimates by securities analysts;

o the depth and liquidity of the market for our common stock;

o investor perceptions of our company and the ag-biotechnology
industry generally; and

o general economic and other conditions.

WE ARE CONTROLLED BY TWO EXISTING STOCKHOLDERS WHO POSSESS SUFFICIENT VOTING
POWER TO PREVENT OR FRUSTRATE ATTEMPTS TO REPLACE OR REMOVE OUR CURRENT
MANAGEMENT OR TO ENGAGE IN CHANGE OF CONTROL TRANSACTIONS.

Our principal stockholders are All Star Technology Inc. and InvestLink
(China) Limited. Wei Li, our Chief Executive Officer and Chairman, is a
principal shareholder of All Star Technology Inc. Da-chang Ju, one of our
directors, is a principal stockholder of InvestLink (China) Limited. All Star
Technology Inc., together with InvestLink (China) Limited, currently
beneficially own approximately 56% of the outstanding shares of our common
stock. Accordingly, All Star Technology Inc., together with InvestLink (China)
Limited, currently have the ability to determine the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including election of directors, mergers, consolidations and the sale of all or
substantially all of our assets. Our principal stockholders will also have the
power to prevent or cause a change in control. The interests of these
stockholders may differ from other stockholders' interests.

THE DESIGNATION OF OUR COMMON STOCK AS "PENNY STOCK" COULD IMPACT THE TRADING
MARKET FOR OUR COMMON STOCK DUE TO BROKER-DEALER REQUIREMENTS IMPOSED BY THE
DESIGNATION OF OUR COMMON STOCK AS "PENNY STOCK."

Our common stock is a "penny stock" as defined in Rules 15g-2 through
15g-6 promulgated under Section 15(g) of the Securities Exchange Act of 1934, as
amended, as it meets the following definitions: (i) the stock trades at a price
less than $5.00 per share; (ii) it is NOT traded on a "recognized" national
exchange; (iii) it is NOT quoted on the NASDAQ Stock Market, or even if so, has
a price less than $5.00 per share; and (iv) is issued by a company with net
tangible assets less than $2.0 million, if in business more than a continuous
three years, or with average revenues of less than $6.0 million for the past
three years. The principal result or

effect of being designated a "penny stock" is that securities broker-dealers
cannot recommend the stock but must trade in it on an unsolicited basis.

Section 15(g) of the Securities Exchange Act of 1934, as amended, and
Rule 15g-2 promulgated thereunder by the Securities and Exchange Commission
require broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account.

Potential investors in our common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be
"penny stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for holders of our common stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.

PROVISIONS IN OUR CHARTER AND THE CORPORATE LAW OF OUR STATE OF INCORPORATION
COULD DETER OR PREVENT AN ACQUISITION OR CHANGE OF CONTROL.

Provisions of our certificate of incorporation may deter or prevent a
change in control of management. Specifically, our certificate of incorporation
allows our Board of Directors to issue 20,000,000 shares of preferred stock, in
one or more series and with such rights and preferences including voting rights,
without further stockholder approval. In the event that the Board of Directors
designates additional series of preferred stock with rights and preferences,
including super-majority voting rights, and issues such preferred stock, the
preferred stock could make our acquisition by means of a tender offer, a proxy
contest or otherwise, more difficult, and could also make the removal of
incumbent officers and directors more difficult. As a result, these provisions
may have an anti-takeover effect. The preferred stock authorized in our
certificate of incorporation may inhibit changes of control that are not
approved by our Board of Directors.

In addition, we are subject to the provisions of Section 203 of the
Delaware General Corporation Law. That section provides, with some exceptions,
that a Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of the person, who is an
"interested stockholder" for a period of three years from the date that the
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder, excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by some employee
stock ownership plans; or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether the person is
an interested stockholder.

These provisions could also limit the price that future investors might
be willing to pay in the future for our common stock. This could have the effect
of delaying, deferring or preventing a CHANGE IN CONTROL of our Company and/or a
change in the members our Board of Directors. The issuance of preferred stock
could also effectively limit or dilute the voting power of our stockholders.
According, such provisions of our articles of incorporation, as amended, may
discourage or prevent an acquisition or disposition of our business that could
otherwise be in the best interest of our shareholders.

INVESTORS SHOULD NOT RELY ON AN INVESTMENT IN OUR COMMON STOCK FOR DIVIDEND
INCOME AS WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.

We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We intend to retain any earnings to finance the growth
of our business. We cannot assure you that we will ever pay cash dividends.
Therefore, investors should not rely on an investment in our common stock if
they require dividend income. The only income in the foreseeable future such
investors will receive from an investment in our common stock will come from
increases in the market price of our common stock. There can be no assurances
that the market price of our common stock will increase or continue to increase,
and such increases

will most likely be uncertain and unpredictable. Whether we pay any cash
dividends in the future will depend on the financial condition, results of
operations and other factors that the Board of Directors will consider.

IT MAY BE DIFFICULT TO FOR INVESTORS TO ENFORCE A SERVICE OF PROCESS OR ENFORCE
LIABILITIES AGAINST US.

We are incorporated in the State of Delaware, and our principal
executive offices are located in the State of California. However, substantially
all our fixed assets and operations are located in the People's Republic of
China. In addition, some of our directors and officers are Chinese citizens and
residents. As a result, it may be more difficult for investors or other third
parties to attach our assets in enforcement of a judgment against us or to
enforce liabilities and obligations against us in certain circumstances. It may
also be difficult to enforce service of process against directors and officers
in China.

ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in the reports filed under the Exchange Act of 1934 is accumulated and
communicated to management, including its principal executive and financial
officers, as appropriate, to allow timely decisions regarding required
disclosure.

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of the end of the period
covered by this report. Based upon and as of the date of that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.

(b) Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting
or in other factors that could have significantly affected those controls
subsequent to the date of the Company's most recent evaluation.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES

The shares described above were issued without registration in reliance upon the
exemption afforded by Section 4(2) of the Securities Act of 1933, as amended,
based on certain representations made to the Company by the recipients.

ITEM 6. EXHIBITS

Exhibit
Number Description of Document
------- -----------------------

3.1 Certificate of Incorporation. (1)

3.2 Bylaws. (1)

10.1 Standby Equity Distribution Agreement between Kiwa Bio-Tech
Products Group Corporation and Cornell Capital Partners, LP,
dated July 6, 2004. (1)

10.2 Placement Agent Agreement between Kiwa Bio-Tech Products Group
Corporation and Newbridge Securities Corporation dated July 6,
2004. (1)

10.3 Registration Rights Agreement, dated July 6, 2004, between
Cornell Capital Partners, LP and Kiwa Bio-Tech Products Group
Corporation. (1)

10.4 Convertible Loan Agreement dated September 2004 among Kiwa
Bio-Tech Products Group Corporation and Young San Kim and Song N.
Bang.

10.5 Common Stock Warrant dated September 23, 2004, issued by Kiwa
Bio-Tech Products Group Corporation to Young San Kim.

10.6 Common Stock Warrant dated September 23, 2004, issued by Kiwa
Bio-Tech Products Group Corporation to Song N. Bang.

31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

----------
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 filed on August 2, 2004.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

KIWA BIO-TECH PRODUCTS GROUP CORPORATION
(Registrant)

/S/ WEI LI
DATE: NOVEMBER 15, 2004 BY: ________________________
WEI LI
CHIEF EXECUTIVE OFFICER

/S/ LIAN-JUN LUO
DATE: NOVEMBER 15, 2004 BY: ________________________
LIAN-JUN LUO
CHIEF FINANCIAL OFFICER